Palestinians queue to fill canisters with fuel at a petrol station in Gaza City. Photograph: Hatem Moussa/AP

Gaza is in the midst of an acute power crisis, with blackouts lasting up to 12 hours and a shortage of generator fuel putting at risk the lives of cardiac and dialysis patients and babies in incubators, as well as increasing daily hardship among the general population.

The sole, privately owned, power station in the Palestinian enclave shut down on Tuesday for the second time in two weeks as a result of the fuel shortage, worsening already limited electricity supplies.

Thirteen public hospitals are running generators on emergency fuel supplied by the Red Cross more than a week ago. However, the 150,000 litres of diesel are expected to be exhausted within the next few days. Hospitals are relying on generators for up to 18 hours a day, according to the Red Cross, which says it cannot guarantee further supplies.

"There is only enough electricity to meet 30% of our needs," said Ahmed Amarain, of the Gaza energy authority. "The interruption of electricity supply is badly affecting all sectors – health, industry, education, infrastructure. Water cannot reach people's houses because there is no electricity to operate pumps. Sewage cannot be treated. All of life is affected by this crisis."

Oxfam warned more than two weeks ago that Gaza was "inching towards a collapse of essential services" as a result of the fuel shortages, quoting the ministry of health as reporting that hospitals were running out of emergency supplies and that the health crisis was reaching "catastrophic proportions". More than 400 kidney dialysis patients were said to be at risk.

Around the same time, the Coastal Municipalities Water Utility reported a 60% reduction in drinking water and a 50% drop in water supply for domestic use. Sewage pumping stations, waste water treatment plants, desalination units and water wells were vulnerable to power shortages, it said.

According to the energy authority, Gaza needs 350 megawatts of electricity. Israel provides 120MW, Egypt 22MW and – since it was bombed by Israel in 2006 – the Gaza power plant has a maximum capacity of 120MW. The deficit means power cuts have been a feature of daily life for several years, but the recent crisis has increased their length and frequency.

The immediate cause is a clampdown by the Egyptian government on the smuggling of fuel through tunnels into Gaza. On Tuesday, Egyptian authorities halted four trucks carrying more than 7,000 litres of diesel to the border with Gaza. Egypt is facing its own fuel shortages, and is also trying to enforce the rule of law in the chaotic Sinai peninsula, from which the smugglers operate.

The Hamas government in Gaza turned to smuggled fuel after the stringent blockade imposed on the territory by Israel in 2007, which led to big shortages in fuel for both industrial and domestic consumption. Hamas took the opportunity to levy taxes – currently at a rate of more than 50% – on smuggled fuel, providing it with an important source of income.

Despite the easing of the blockade in 2010, Israeli-imported fuel is still in short supply and much more expensive than fuel smuggled from Egypt.

Last week, after Egypt's clampdown on smuggling, Gaza signed a deal with Cairo, under which Egypt would supply legitimate fuel at international prices. However, the agreement has not yet been put into effect due to a dispute over where the fuel should enter Gaza.

The Egyptians say their only border crossing with Gaza, at Rafah, is unsuitable for heavy goods and want to bring fuel in via Israel's industrial crossing at Kerem Shalom. But this would require Gaza's privately owned power station and other businesses to pay import duties levied by the Fatah-run Palestinian Authority (PA) in Ramallah and collected on its behalf by Israel. For the rival Hamas-run Gaza government, this would add to the blow of losing its own tax revenues on smuggled fuel.

According to Amarain, Gaza would be willing to swallow this bitter pill but fears the supply of fuel through Kerem Shalom could be interrupted given Israel's record of spot closures of the crossing. "We need a continuous supply of fuel to operate the power station," he said.

There has been a further long-running dispute between the PA and the Gaza government over who should pay for Gaza's electricity supply from Israel.

Consequences for Gaza

The combined factors of Israel's continued sanctions, the Egyptians' new crackdown on smuggling, and fallout from the long Fatah-Hamas enmity are having consequences for the Gaza population ranging from miserable to dire.

At the Jalaa bakery in Gaza City, the owner's son, Yasser Ajrami, said the shortage of generator diesel had pushed up prices, almost tripling the monthly cost of heating his ovens. "No one knows how long this will go on for. Every day we're told the problem will be solved, but nothing happens," he said. Asked who he blamed for the crisis, he would say no more than "it's a political crisis".

Ibrahim Barbary, the owner of a nearby petrol station, said he had to ration supplies to his customers and police officers were needed to control queues of hundreds of vehicles. Rasha Rayyan, 19, a student, said the power was off in her home for 12 hours a day, making study impossible after dark.

Anger over the crisis is being voiced on Facebook, with some blame ascribed to Hamas. But in rare public criticism, Khalil Abu Shammala, the director of al-Dameer, a human rights organisation in Gaza, said Hamas bore responsibility. He has since been accused of inciting public opinion in a letter from Gaza's attorney general.

"It's not easy for anyone to raise his voice and criticise Hamas," he told the Guardian. "The political split [between Hamas and Fatah] is the cause of this crisis. The citizens of Gaza are not part of this split, so why should they pay the price?" But, he added, the main underlying reason was Israel's continuing blockade. "You cannot deny Israel's responsibility as an occupying power," he said.

Catherine Essoyan, of Oxfam, said only the lifting of the blockade would solve the crisis over the long term. "The present crisis underscores that the tunnels cannot provide a sustainable solution to the blockade," she said. "The government of Israel's near ban on import of fuel for public sale has worsened the situation for the people of Gaza. To solve the electricity crisis we need a full and consistent opening of all of Gaza's crossings in accordance with international law."